"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput

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Sunday, September 28, 2014

It has been some time since I have posted a LONG TERM ( monthly ) chart for gold. I have been using the weekly and daily time frames for analysis purpose but I wanted to take the opportunity to answer - in this format - my critics and those who continue to deny that gold is currently in a bear market. Over and over again, we get the same worn-out trite from the gold perma-bulls, that "any day now" gold is going to launch and that the current sell off is a GREAT BUYING opportunity.This is coming from the same people who also have been assuring us for the last THREE YEARS that based on one wild theory and reckless claim after another, that a big short squeeze was imminent and that the "smart investor" should be buying. They told us this at $1800, then at $1700, then at $1600, most certainly at $1500, again at $1400, screamed even louder at $1300 and now they are down to dealing with $1200. Every time, it is the same foolish and wild claim - "based on such and such theory or such and such "insider" information, gold is getting ready to launch.How many of these theories have we tried to debunk over here, incurring as the result the wrath and ire of the gold cult members. Let me name a few once more and recall the breathless and dogmatic pronouncements, as if from on high, that once the markets understood this secret gnosis that only those advocating these things were privy to, it was "the sky is the limit" for gold prices. Merely listing them here brings back the many battles we have had to fight to dispel these things.1.) Gold Backwardation2.) Negative GOFO rates3.) JP Morgan long side corner of the gold market4.) Shrinking Comex warehouse numbers5.) Swap Dealers on the Long side6.) Hedge funds on the short side ( imminent short covering squeeze)7.) Death of the Dollar 8.) Phony Inflation statistics9.) Bank Bail-ins.10.) WWIII with Russia
11.) Self proclaimed insider London trader and whistleblower tossing around esoteric claims of huge tonnage of gold buys by "smart money"12.) Ad infinitum, ad nauseamIf I have left off any of them or forgot any, I am hoping the readers will supply them.Coincidentally enough, those advocating these theories tend to all have one thing in common - they make money by selling gold, gold-oriented newsletters, gold-oriented website subscriptions or per-click advertising fees, gold-mining oriented mutual funds, gold-oriented physical gold funds, etc. In other words, all of those pushing these claims and theories, tend to profit as long as they have a steady steam of gullible people that they can separate from their money. They simply CANNOT BE OBJECTIVE. Once the public is convinced that the bull market in the precious metals is over and therefore loses interest in what they are selling, their livelihoods are impacted negatively. What is required therefore is a steady, incessant birthing of new stories, new theories, new claims, to keep the fire of fear ( and greed) alive.With that in mind, here is a LONG TERM or MONTHLY Chart of gold. I have noted several key areas for the reader. Of course, in hindsight, all these things are clear that were murky at the moment, but that is the beauty of a long term price chart - it provides an unbiased, objective, hard-nosed view of things that anyone without a bias, can easily perceive if they approach it with an open mind.

Note first the "SECONDARY TOP" made two years ago to this very month at the $1800 mark. That is a near picture-perfect/ textbook Technical Analysis example of a market that was getting ready to transition from one of a bull to one of a bear. Prior to that however, the key support level near $1530-$1525, which had served to bring in buyers for nearly a year and a half had to give way. All that one could say PRIOR to that level being taken out, was that the bull market was potentially changing to one of a bear but that current price action was one of consolidation/range trading.Things changed once that $1530-$1525 level gave way as gold then entered the beginning of its current bear market. By definition, most TA students will note that a price fall of 20% or more, from off of a market peak, put a market in bear market territory. One will sometimes see these sorts of sharp falls in price, but then the market rebounds quickly and moves back above the 20% price level and resumes a range trade or even resumes a new bullish leg higher.

This was NOT the case with gold which has not regained that level ( $1530-$1525) in over a year and a half now. Take a look at one of my favorite technical indicators illustrated below the price - namely that of the ADX and DMI. This indicator is a TRENDING indicator, one which shows the current state of the market, either trending or ranging. With the DMI added to it, it reveals which side, bull or bear, is currently in control of the price action.Here is an important thing to note - if one goes back to the very beginning of the bull market in gold that began in late 1999 but was not confirmed until 2001, NOT ONCE over that entire period from 2001 - 2013 did the -DMI ( negative directional movement index - which indicates downward price action - ) make an upside crossover of the +DMI ( positive directional movement index). That informed us that in spite of the sharp plunge in price that occurred in 2008 as the credit crisis erupted sending a deflationary shock wave across nearly all asset classes, gold remained under the control of bullish forces. While the uptrend had been halted, the market was merely undergoing a correction and was not ready to change gears to a bear.

Now fast forward to early 2013, the same year that the gold price entered BEAR MARKET TERRITORY and also broke down below key chart support at the $1530-$1525 zone and examine the DMI lines. Do you see it? Yes, the -DMI crossed above the +DMI for the first time since falling below it back in 1999! In other words, a SELL signal was generated just as a key support level gave way on the downside.The Bear market was thus confirmed.Also note the Fibonacci retracement levels I have drawn in on the chart. The initial price retracement level noted, the 25% level, came in near $1507, not far off from the key zone $1535-$1525. When that gave way, the next level one looks for is the 38.2% retracement level. That was at $1287. Incidentally, that is why, in my view, the $1280 level was such a key pivot level. The market was oscillating around that number for some time.

You can see from the price action that this 38.2% level served to hold the market in a consolidation pattern for some time as prices moved above it and then fell below it but continued ranging. That has been the pattern now for the last 16 months. However, note that the TRENDLINE I have also drawn in is showing a series of LOWER HIGHS that have been occurring over this same time period.Translation - while gold is range trading and oscillating around the 38.2% Fibonacci retracement level, the rallies are losing steam with selling coming in at progressively LOWER levels. The range trade is threatening to come to an end with the resumption of a breakout to the downside. That is not a sign of inherent strength nor is it any indication of a market getting "ready for a moon shot higher any day now". Quite the contrary - it is a market looking more and more as if it wants to GO DOWN, not up!This is why the "CRITICAL SUPPORT ZONE" is indeed CRITICAL at this point. If gold fails to hold here, right now, and breaks below that zone ( just like it failed to hold the $1530-$1525 zone ) odds are going to favor a move down to the 50% Fibonacci retracement level at $1091.

If that occurs, the -DMI line will cross ABOVE the ADX line for the first time since 1997! It could very well signify the start of a new leg lower in price. I want to make it clear that I am not saying this is absolutely going to happen as I am NOT IN THE PREDICTION business which so many of the gold perma bulls seem to delight in incessantly doing ( wrongly I should add and with ZERO accountability for their failed dogmatic predictions). Traders merely note probabilities but more importantly, allow the market to speak and inform us of what it is going to do next ( even that is not 100% foolproof). What I am saying however is that those who keep regaling us with such wisdom as "Keep Stackin", "Huge Gold Buys from Smart Money" etc, are not doing their victims any favors. How much money has been lost by those who have blindly followed their fool's counsel over the last few years? What the message from this chart is saying is the exact opposite of what those charlatans and modern day flim-flam artists are saying. It is saying "Be very careful if you are a bull" right now because the bears are in control of this market and the technical indicators are clearly showing a building bearish momentum. Gold may well prove the bears wrong in the months ahead but that will show itself on this same price chart. For me, to get the least bit more upbeat on gold's prospects, I would need to see price clear $1400. That would tell me that something has changed in the minds of those who trade this market and that sentiment has shifted in favor of the bulls. For now, CAVEAT EMPTOR!

If you have benefitted from some of the articles posted here and would like to express your gratitude to Trader Dan for freely sharing some of the market wisdom he has gained over his long trading career, please feel free to Donate.

About Me

Dan Norcini is a professional off-the-floor commodities trader bringing more than 20 years experience in the markets to provide a trader’s insight and commentary on the day’s price action. His editorial contributions and supporting technical analysis charts cover a broad range of tradable entities including the precious metals and foreign exchange markets as well as the broader commodity world. He is a frequent contributor to both Reuters and Dow Jones as a market analyst for the livestock sector and can be on occasion be found as a source in the Wall Street Journal’s commodities section as well as CBS Marketwatch where his views on the gold market can often be found.
He is also an avid beekeeper.

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